CP and KCS stakeholders strongly vote in support of proposed merger agreement

The most recent development in Class I railroad carrier Canadian Pacific’s proposed acquisition of its Class I counterpart Kansas City Southern went as planned this week, with shareholders, at each company, widely signing off on the deal.

On Wednesday, CP shareholders voted in favor of issuing CP common shares to KCS common stakeholders related to the proposed deal by a 99.91% to 0.09% margin. And they also voted—by a 99.83% to 0.17% margin—on a special resolution to approve an amendment to CP's articles of incorporation to change its name to Canadian Pacific Kansas City Limited, which it said is a change contingent upon the approval by the U.S. Surface Transportation Board (STB) of the proposed CP-KCS combination.   

“The shareholder approvals today are a key step on our path to this once-in-a-lifetime partnership to create the first U.S.-Mexico-Canada rail network,” said Keith Creel, CP President and Chief Executive Officer, in a statement. “This is a transformative opportunity for CP, for KCS, and for the North American economy. The overwhelming support our shareholders have given today to the transaction is critical to making this combination a reality. In the coming days, we will be working to complete the steps required to close into the voting trust, and in the months ahead we look forward to participating in the STB's comprehensive regulatory review. Following receipt of STB approval and consummation of CP control, Canadian Pacific Kansas City will add new capacity to the U.S. rail network, create new competitive transportation options, support North American economic growth, and deliver other important benefits to customers, employees, and the environment.”

KCS announced earlier today that its stockholders also unanimously approved the proposed deal with CP, with 99.6% of the 64.5 million shares voting at a Special Meeting of Stockholders supporting the proposed merger agreement.

It added that the transaction is expected to close on Tuesday, December 14, at which point KCS stockholders will receive $90 in cash and 2.884 CP shares for each KCS common share held and $37.50 in cash for each KCS preferred share held.

“Immediately upon close, ownership of KCS will be held in a voting trust pending the Surface Transportation Board’s review and approval of CP’s proposed control of KCS, which is expected to occur in the fourth quarter of 2022,” noted a KCS statement.

As previously reported by LM, on November 23 the STB announced it has “accepted for consideration” the application filed on October 29 by Canadian Pacific Railway (CP) and Kansas City Southern Railway (KCS) concerning their potential merger. 

The filing of this application followed the closing of the agreement reached in mid-September between KCS and CP, in which CP will acquire KCS for $31 billion, in a stock and cash transaction, which includes the assumption of $3.8 billion of outstanding KCS debt.

As for the next steps, STB officials said that notices of intent to participate are due by December 13, with subsequent deadlines included in its decision. And it added that the procedural schedule provides that any necessary public hearing will be take place after the filing of final briefs, which are due on July 1, 2022.

In late October, CP and KCS said that the control application provides:

-an overview of the proposed operational integration of the CP and KCS rail networks;
-the impact of that consolidation on the companies' finances and labor needs; and
-the anticipated competitive and other benefits that will flow from providing shippers with new and better transportation alternatives

They also added that information in the filing outlines the public and customer benefits a CP-KCS combination would bring, including more efficient north-south trade arteries to support the interconnected supply chains of the United States, Mexico and Canada.

CP and KCS said that this transaction is subject to approval by CP and KCS shareholders along with satisfaction of customary closing conditions, which include Mexican regulatory approvals. Shareholders are expected to vote on this transaction later in 2021.

KCS and CP said that this deal is subject to approval by the Surface Transportation Board (STB), whom last April reaffirmed that it would review the CP-KCS deal under pre-2001 merger rules and also the waiver granted to KCS in 2001 to exempt it from those rules. And they added that STB’s review of this deal is expected to be completed in the second half of 2022. 

Keith Creel, CP President and Chief Executive Officer, said at last month's RailTrends conference in New York, which was hosted by Progressive Railroading magazine and independent railroad analyst Anthony Hatch, that this deal represents what he called a transformational transaction.

“This is a transaction we pursued with vigor and aggressiveness, and we were fighting for what we believed in,” said Creel. “We prevailed, to this point, with grit, determination, and resolve. We are super-excited about this opportunity. It is the one and only transcontinental railroad [through Canada, the United States, and Mexico] and won’t be replicated. In and of itself, it is a unique combination, which is what motivated a lot of this. It is a combination that allows growth and for the pursuit of the next 140 years. We have a franchise that is a leader, and we are in a very good position.”

As for the future CPKC network, Creel explained it is positioned to provide a unique set of outcomes that will be unparalleled in this industry.

“When you think about the need for this, there has never been a greater need,” he said. “I am thinking about the environment we will be serving in a better way, that communities—that because of this transaction—it enables and unlocks investment for infrastructure and installs PTC (Positive Train Control)…and all of the details of running a business and running it efficiently and safely. It will also take trucks off of the road. We have said for a long time that we [trains] are 75% more fuel-efficient. The number of trucks that come across the Mexican border from Laredo into the Midwest, to Kansas City and Chicago and into Canada…to be able to take that environmental opportunity and match it with an economic opportunity will be…is among the reasons we are excited for this opportunity.”

CP officials added this week that, in November, required Mexican approvals were received, regarding the proposed merger.